|By Maureen O'Gara||
|November 19, 2012 07:00 AM EST||
Cisco, the networking king and economic bellwether, cleared better-than-expected earnings of $2.09 billion, or 39 cents a share, up 10.6% year-over-year, in its first fiscal quarter, which closed at the end of October. Revenues were up 5.5% to $11.9 billion despite depressed demand in key markets like Europe, down 10%, and long-term threats from widgetry like software-defined networking.
CEO John Chambers called the economy "challenging."
Cisco's core switching and routing sales, representing 47% of revenue, both declined 2% year-over-year, to $3.6 billion and $2.1 billion respectively.
Switching was hit by slowing in the public sector and developed countries. The routing segment was hurt by weakness in service providers, especially in EMEA, although Cisco did see double-digit growth in edge routing.
Europe was down 10% and government sales down 6%.
Still Cisco beat estimates of 46 cents on $11.8 billion but expects flat earnings and slower revenue growth this quarter. Cisco figures Europe will get worse before it gets better but is seeing an improvement in the US.
Cisco managed to meet reduced expectations by cutting costs, eliminating jobs, shutting lines of business and cutting prices to ward off competitors like Arista and HP. It realized a gross margin of 62.7% of revenue.
Service provider video rose 30% to $1.1 billion. Collaboration technologies fell 8% to $1 billion. Wireless product sales rose 38%. Data center sales rose 61%, security technology sales rose 6%. All other goods were down 12%.
Enterprise sales were down 1%, sales to the public sector were off 6%. Commercial sales, including consumer goods, rose 1%, and sales to service providers rose 3%.
CEO John Chambers said the US, where Cisco was able to close more big deals in the quarter, will have to pull the world out of its stupor. Asia, up 7%, and the developing world can't do it. US GDP growth needs to get above 2% because otherwise "there will be no job growth in the US." And that depends on Washington working together.
If the White House doesn't relent on revenue repatriation, Chambers said Cisco would spend its massive cash horde overseas.
Cisco expects to return earnings per share, excluding items, of 47 cents-48 cents, excluding one-time charges, in its fiscal second quarter, which runs until the end of January, on revenue growth of 3.5%-5.5%, compared to 11.5% a year ago. The Street figures revenues will be up 4.5% to $12.04 billion.
Overgrown applications have given way to modular applications, driven by the need to break larger problems into smaller problems. Similarly large monolithic development processes have been forced to be broken into smaller agile development cycles. Looking at trends in software development, microservices architectures meet the same demands. Additional benefits of microservices architectures are compartmentalization and a limited impact of service failure versus a complete software malfunction. ...
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